Monday, August 15, 2005

"Yahoo!'s Personality Crisis"... From The Economist

Interesting article from The Economist. Tony Perkins, AlwaysOn and GoingOn's CEO, was asked for his view on Yahoo! and is quoted below. I'm posting the majority of this article since this has been placed in their premium content section:

Yahoo!'s personality crisis


Aug 11th 2005
From The Economist print edition

Yahoo! is doing so many different things that it may have neglected to figure out what it wants to be

STUDENTS from Harvard Business School and MIT's Sloan School of Management were recently invited to play a "war game" between the big four internet portals--Yahoo!, Google, Time Warner's AOL, and Microsoft's MSN. The organiser, Fuld & Company, a consultancy, split the students into teams, which began by delivering a brutally honest analysis of each firm's position and then did battle. Yahoo!, its team thought, is in essence a smorgasbord. "I don't have to be the best at everything; I just have to be good enough for you," said the team's presenter. Google's team, by contrast, was confident that it alone was the true technological innovator. The MSN team, predictably, talked mostly about "leveraging Windows", Microsoft's ubiquitous operating system, which excited nobody. And the AOL team began its presentation by saying that "we are fortunate just to be invited to the party." In the end, Google won and Yahoo! came last. The winning team got $5,000.

In the real world, the stakes are far higher, but the basic analysis may prove correct. As if to prove the smorgasbord theory, Yahoo! this week finalised a $1 billion deal with Alibaba.com[1], a Chinese firm, that will give Yahoo! greater exposure to the promising, fashionable Chinese market, but may make Yahoo!'s product portfolio even less coherent.
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ALL THINGS TO ALL MEN
Yahoo!, of course, would disagree. "The only place anyone needs to go to find anything, communicate with anyone, or buy anything," is how the firm describes itself, adding that it has a web audience of over 345m users in 25 countries. This appears to be paying off handsomely. Last month, Yahoo! reported quarterly revenues up by 51%, and profits up by 70%, compared with the same period last year (excluding the spectacular profits that Yahoo! made by selling shares it owned in its rival, Google). Internet advertising is growing fast, but Yahoo! is growing even faster, said Mr Semel.

Yet by other measures, Yahoo! is not the hottest thing on the internet. Microsoft appears to consider Google its only real threat, and vice versa. If the standard is product excellence, Google seems to be the clear winner in the biggest category, search--its share of searches has been rising, to 52% in America as of June, whereas Yahoo!'s has fallen, to 25%. Ditto for music, blogging, pictures and many other categories--in each, there is another firm that most users currently consider better. If Wall Street is the judge, Yahoo! also loses--with roughly equal revenues, it is worth only 60% of Google's market capitalisation of $84 billion (see chart).

The question, then, is what Yahoo! is ultimately planning to become that is different from its rivals. One clue is the people it is hiring. Starting with Mr Semel, a Hollywood veteran and former technophobe, Yahoo! has been recruiting traditional media types. Its head office is in Silicon Valley, but Yahoo! has been expanding a campus in Los Angeles. Google has nothing in Hollywood, and is hiring software geeks, starting with its chief executive, Eric Schmidt, who previously ran Novell, a software firm, and was chief technologist at Sun Microsystems, a big hardware maker.

Google, in short, is at heart a technology firm. It is about algorithms. Yahoo! sees itself as a media firm. "Google says 'trust the machine'; Yahoo! says 'trust the editor or the community'," says Paul Saffo of the Institute for the Future. "Its DNA is editors and making recommendations to other people." Consider, say, the difference between the firms' news sites: Google's story list is picked by computers with no human intervention; Yahoo!'s is edited by journalists. Yahoo!'s Hollywood types do deals with film studios and news organisations--from September, for instance, Yahoo! will offer video feeds from ABC News and CNN. Google's geeks "merely" try to write great computer code.

Yahoo!'s ambition is to become the leader in the 21st century's media industry. In this era, it believes (with almost everyone in the internet industry), content will no longer be generated by a few large, wealthy firms, but by users themselves, through their photo and video blogs, podcasts, hyperlinks and so on. Hence Yahoo!'s purchase of Flickr, a site where people can share pictures with the public or their friends. And hence Yahoo! 360, a service, to be launched this summer, that lets users combine their photos and music, restaurant reviews and blogs in a personal space into which they can invite other Yahoo! users by instant-messaging, voice chatting or simply hyperlinking. Yahoo! wants to "marry search with community," says Jeff Weiner, Yahoo!'s search boss.

There is a huge problem with this vision, however. Yahoo!'s "business model is necessarily in conflict," says John Battelle, the author of a forthcoming book on the search industry. With so much content owned by Yahoo! or generated within its site by users, the quandary for the firm will be: "Do you point people to your own stuff or to the most relevant stuff?" If the former, Yahoo!'s reputation as a trusted internet search and navigation brand may evaporate; if the latter, its content may not earn the returns to justify Yahoo!'s investments in it. By contrast, says Mr Battelle, Google, which has chosen not to make content, does not face this conflict.

The dilemma may be even larger than that. "The Yahoo! guys are trying to create a walled-garden experience; they're like AOL in '95," says Tony Perkins, the founder of AlwaysOn, an online social network for technology insiders. That is not a compliment, as AOL, which began as a proprietary online service, started its long decline at about that time, after missing the impact of the new, open environment of the world wide web. With "closed" services like 360, says Mr Perkins, it is now Yahoo! that is missing the trend toward an ever more "open web" that will be "full of one-trick ponies" all available at a single click. If Yahoo!'s users get the feeling that they are being ushered to sites purely because they belong to Yahoo!, reckons Mr Perkins, they will simply click out.

This may be Yahoo!'s fatal flaw. "MSN and AOL are going nowhere," says Mr Saffo, for they have "no soul, no passion." Yahoo! has passion, like Google and other newcomers. It may also have correctly spotted the shift from old media to new, user-generated media. But, says Mr Saffo, it seems to have missed one thing. The "world of the few and large" belongs to media in the 20th century, whereas this century will bring a "world of the many and small". Yahoo!, in short, has old-media plans for the new-media era.

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